73 Is the New 65

Based on a recent study from the Nyhart consulting group in Indianapolis, 73 is the new 65. Whereas we typically think of 65 as a common retirement age, 401k savers studied in this report won’t be able to afford to retire until age 73, based on their current saving patterns. In population terms, that means 81% of workers won’t be able to retire by age 65. Are you one of them?

The study found that the major factor affecting when workers can retire is their savings rate—and not which mutual funds they invested in or how much their employers contributed to their 401k accounts. Fortunately, how much you contribute to your 401k is the one factor you really have total control of. Like all good Americans, the 401k workers in this study do what we all do: procrastinate. As these workers age and get closer to retirement, guess what happens to their savings rate? It increases, and at a pretty dramatic rate once they got past age 49. Nothing like a deadline (retirement) to focus the mind.

You might expect that in general, younger workers would do a better job saving in their 401k plan. After all, the “save more now” retirement message has really been out there in the media for quite a while. Employers often hold retirement education workshops to encourage employees to actively participate in the company’s retirement plan. If you use tax software to file your tax returns, many of the programs will suggest saving more through your employer’s 401k plan to lower your overall tax bill for the upcoming year. So have all these messages gotten through to the minds of 401k workers, especially younger ones? Apparently not. Even workers in their 20s are projected not to be able to retire until age 71 or 72, according to the study.

So is there any hope for 401k workers? Indeed there is. Increasing contribution rates by as little as 2% for all workers could mean almost 30% of workers could retire by age 65, compared to only 19% at our current pace. For younger employees (under age 30), increasing that contribution level by just 4% would mean almost 60% of them could retire by age 65. And increasing your contribution level by 4% doesn’t have to be done all at once. If you increase it 1% per year for the next four years, you’re there—and you probably won’t notice much difference in your paycheck.

The lessons in this study certainly apply to other types of retirement plans, such as 403b plans (teachers) and 457 plans (government employees). The message (again) is pretty clear: save more now. Even in tough economic times. Expect to rely less and less on your employer to save for you, but instead take responsibility for yourself. Not likely anyone else is going to.

Of course, if you want and expect to work until age 73, you don’t need to change much. Just recognize you’re taking a bit of a gamble that your health will be good and your job opportunities will be there through your late 60s and early 70s. Stats usually indicate though that unexpected health changes (for the worse) force a lot more people into early retirement (before age 65), which is not what most folks want. So if you want to hedge your bets, start saving a little more now, this year. Even 1% more can make a difference over time.


About Mike Wilson

Michael L. Wilson, MBA, CFP®, CRC®, is the owner of Integrity Financial Planning. Prior to founding Integrity in 1998, he worked for two years as a faculty member at the College for Financial Planning in Denver, training other financial advisors. Mike has 10 years of experience in the mutual fund industry, having worked with Fidelity Investments and Invesco Mutual Funds. He holds an MBA in Finance from Baylor University. Learn more about his work at www.integrityplanner.com.
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